THE US GOVERNMENT is proving reluctant to broaden its bail-out of the banking sector by supporting the struggling motor industry through direct capital injections into Detroits cash-strapped "big three" carmakers.
After weeks of negotiation, the US treasury has reportedly said that it will not provide General Motors with the $10 billion (€7.7 billion) needed to ease a merger with Chrysler, spurning pleas from GM's boss Rick Wagoner and from the governors of six industrial states.
Instead, any relief is likely to come through an acceleration of $25 billion in federal loans under an environmental initiative to help fund the development of fuel-efficient cars.
The US government faces a delicate balancing act. GM's rival, Ford, has declared that it expects "parity" if any taxpayers' money benefits GM and Chrysler. Economists have warned that if either Ford or GM collapses, the number of job losses among the carmakers' suppliers could top two million.
Accounting firm Grant Thornton last week calculated that a merger of the two companies could cost 12,000 union jobs.
The motor companies' struggles have become an issue in the final days of the US election, as battleground states such as Ohio and Indiana are home to thousands of car workers.
Democratic candidate Barack Obama has pledged to meet urgently with union leaders and motor industry bosses if he is elected, saying he wants to keep "every option" on the table.
His opponent, John McCain, has backed an acceleration of the department of energy's $25 billion in environmental loans, telling ABC television: "I would do whatever I think needs to be done to help out the auto industry."
GM is citing the company's overall impact on the economy through manufacturing and related industries, and emphasising the structure and reach of its distressed but historically lucrative consumer lending operations.
For instance, the three car giants own or partially own companies - GMAC, Ford Motor Credit, and Chrysler Financial - that run car financing, insurance and mortgage operations.
Bad debts at these units are hurting their parent company's performance. GMAC, for example, has restricted its lending only to buyers with the best credit at a time when sales are plummeting and GM is burning through cash.
Scott Talbott, chief of government affairs for the Financial Services Roundtable, said industry aid could clearly help consumers get car loans at a time when lending markets are virtually frozen.
The aid would also spread to dealers who rely on the car firm's ability to have access to credit. "Both of those processes have shut down," said Talbott.
GMAC has been approved to use the short-term funding facility created by the US Federal Reserve earlier this month to ease pressure on the corporate credit market.